Digital future: a tale of two Europes

SPECIAL REPORT: Wide variations in the predicted impact of the digital sector of the future European economy are challenging policymakers’ preparation for a radically different jobs market.

Although most experts agree that the digital industries will play a pivotal role in the European economy, academics disagree about the extent and form this will take.

The debate divides broadly between so-called “minimalists” – those who believe little will change – and “maximalists”, who believe that everything will.

The minimalists believe that we are entering a phase of persistent low economic growth and new technology will cease to be as impactful as in the past.

Economic growth in the US will slow down over the next 30 years, “minimalist” academic Robert Gordon, a professor at Northwestern University in the US, claimed in an influential paper published this year.

Gordon is sceptical about projections of a boom in economic growth in the developed western economies fed by the digital sector.

Another camp claims that economic growth generated by the digital economy will spur large quantities of new business, but that the majority of the resulting jobs will not require technical expertise.

Look to the past to predict the future

This camp looks back to the technological boom caused by the industrial revolution during the 19th century, pointing out that it shrunk the share of specialised jobs, but increased overall output and stimulated peripheral employment sectors.

During that time, as an example, the share of US workers directly employed in farming shrank from 40% to today’s one percent. The whole economy expanded and transformed into a modern industrial economy, however, employing more people overall, including many more in the wider food industry.

In the other corner are the so-called “maximalists”, who predict a dramatic economic shift arising from the coming of a second “Machine Age”, with a corresponding impact on the jobs sector where digital skills will become key.

According to this view, the automation of jobs threatens not just routine mechanised production but also many services sector jobs which require cognitive input.

Recent “maximalist” research by Oxford University has estimated that – based on the current employment market – 47% of US jobs are vulnerable to computerisation.

These jobs are at the low-skill, low-wage end of the labour market as tasks previously hard to computerise in the service sector become vulnerable to technological advance.

Jeremy Bowles – a researcher with think tank Bruegel – applied this Oxford University research to the EU this summer, finding that northern EU countries Netherlands, Belgium, Germany, France, UK, Ireland, and Sweden – have computerisation risk levels similar to the US figure. However eastern and southern EU member states are even more at risk according to Bowles.

He concluded that in the longer term from around 45% to “well over 60%” of the job markets in these peripheral countries could be affected.

These wide variations in forecasting economic outcomes destabilise policymaking, making it hard to plan for a future that cannot easily be predicted.

Tricky to make policies for an uncertain future

If sectors tradition­­ally immune to technology – towards the low-skill end of the spectrum – are badly hit, as Bowles predicts, then workers need to be reallocated to less susceptible job sectors. This would be a painful process and involve radical adaptation of education systems.

Seen from a minimalist perspective, less needs to be done from a policymaking perspective.

The EU executive tends towards the maximalist view. For example, research with the support of the Commission’s digital unit published this year – Sizing the EU App Economy– found that app developers could quadruple their earnings over the next five years.

An App boom will see profits deriving from apps for consumer goods, banking, media and retail sectors rise from €11.5 billion last year to €46 billion by 2018, according to the research.

The EU executive claims it also considers the economic impact when regulating.

“We have been very aware of the economic impact of regulation – that’s why most of what we have done has been grass-roots initiatives and light touch, such as the Grand Coalition for Digital Skills and Jobs; and StartUp Europe – and indeed Code Week EU itself,” a spokesman for outgoing digital agenda Commissioner Neelie Kroes says of her term in office.

Over time, the spokesman insists, “we will see their positive effect on the economy” arising from these changes, he says.

Whether he is right will also depend on which side of the maxi/mini debate proves to be correct.

Background

Europe Code Week raises awareness about a skill that will only become more influential as time passes.

Coding is the language of computers – learn to write it and you will be able to create software, websites, and apps.

It could even help to reduce the EU's stubbornly high unemployment figures and get it back on the growth track.